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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(X) Annual Report pursuant to Section 13 or 15(d) of the Securities and Exchange
Act of 1934 for the fiscal year ended December 31, 2004.
( ) Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No Fee Required) for the transition period from to
000-25783
Commission File Number
Americana Publishing, Inc.
(Exact name of registrant as specified in its charter)
Colorado 84-1453702
(State or other jurisdiction of (IRS Employer ID No.)
incorporation or organization)
303 San Mateo NE, Suite 104A
Albuquerque, New Mexico 87108
(Address of principal executive offices)
(505) 265-6121
(Registrant's telephone number, including area code)
Securities registered pursuant to section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
Check whether the issuer: (1) filed all reports required to be filed by section
13 or 15(d) of the Exchange Act during the past 12 months (or such shorter
period that the registrant was required to be file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this form 10-KSB [ ]
State issuer's revenues for its most recent fiscal year: $1,229,978
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was, or the average bid and asked prices of such common equity, as of a
specified date within the past 60 days. (See definition of affiliate in Rule
12b-2 of the Exchange Act). As of April 8, 2005 the market value of the
voting stock held by non-affiliates was $4,378,309.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. 31,915,453 shares as of April 8, 2005.
DOCUMENTS INCORPORATED BY REFERENCE if the following documents are incorporated
by reference, briefly describe them and identify the part of the Form 10-KSB
into which the document is incorporated: (1) any annual report to security
holders; (2) any proxy or information statement; and (3) any prospectus filed
pursuant to Rule 424(b) or (c) of the Securities Act of 1933 (the "Securities
Act"). The listed documents should be clearly described for identification
purposes. None.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
AMERICANA PUBLISHING, INC. FORM 10-KSB
INDEX
PART I PAGE
Item 1. DESCRIPTION OF BUSINESS 1-3
Item 2. DESCRIPTION OF PROPERTY 4
Item 3. LEGAL PROCEEDINGS 4-5
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 5
PART II
Item 5. MARKET FOR THE COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER
PURCHASES OF SECURITIES 5-8
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS 8-16
Item 7. FINANCIAL STATEMENTS F-1-F-18
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE; 17
Item 8A. CONTROLS AND PROCEDURES 17-18
PART III
Item 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 18-19
Item 10. EXECUTIVE COMPENSATION 19-20
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS 21
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 21
Item 13. EXHIBITS AND REPORTS ON FORM 8-K 22
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 23
SIGNATURES 23
PART I
This Annual Report on Form 10-KSB contains "forward-looking statements". These
forward-looking statements are based on our current expectations, assumptions,
estimates and projections about our business and our industry. Words such as
"believe," "anticipate," "expect," "intend," "plan," "may," and other
similar expressions identify forward-looking statements. In addition, any
statements that refer to expectations, projections or other characterizations of
future events or circumstances are forward-looking statements. These
forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those reflected in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, the following:
* whether or not we can raise the capital necessary to implement our business
plan and fund future operations,
* whether or not we are able to expand the market for our products,
* whether or not the acquisitions we have made or that we will make in the
future will be profitable,
* increased competition in our niche market, truck stops, that would cause us
to reduce the sales price of our products or that would otherwise adversely
impact our sales,
* changing economic conditions that may impact discretionary spending by
consumers, and
* other factors, some of which will be outside our control.
You are cautioned not to place undue reliance on these forward-looking statements,
which relate only to events as of the date on which the statements are made. We
undertake no obligation to publicly revise these forward-looking statements
to reflect events or circumstances that arise after the date hereof. You
should refer to and carefully review the information in future documents we
file with the Securities and Exchange Commission.
Item 1. DESCRIPTION OF BUSINESS
THE COMPANY
Our Business.
From October 1996 until April 1997, our predecessor operated as a development
stage division of B.H. Capital Limited, engaging in publication design research,
industry and competition research and demographic research. B.H. Capital Limited
is an entity whose principal and sole owner is George Lovato, Jr., our chairman,
Chief Executive Officer and President. We were incorporated under the laws of
the State of Colorado on April 17, 1997.
We are a multi-media publishing company and wholesale product provider to
media distributors. We believe that consumers today desire audio books, e-books,
CD-ROMs or a downloadable digital file in addition to traditional print books.
We believe that of the approximately 17,000 publishers in the United States,
many are unable to, or choose not to, publish manuscripts in alternative formats.
We publish and sell audio books, print books and electronic books in a variety of
genres, including mystery, western, personal development, spiritual and children's
publications.
Books are selected for publication based on information that we receive from
book buyers and from our network of wholesale distributors. We receive manuscripts
from independent authors, as well as from publishing houses.
We license the manuscripts we publish either directly from the author or from the
publishing house. We normally pay a royalty of 10% on the proceeds of the books
we sell. License agreements may also require an advance royalty deposit, in a
range of $250 to $500 per title licensed. The average term for a license agreement
is five years. At the end of 2004, we held license rights to approximately 160 titles.
1
Sales are generated through telemarketing, direct mail and through industry contacts
by our employees. Approximately 87% of our sales come from the placement of our
products in truck stops. Our products are placed through a network of industry sector
distributors who purchase the products from us wholesale. Our products are also
sold directly to bookstores and libraries, primarily through telemarketing,
and to businesses and consumers via the Internet, through our website, americanabooks.com.
Approximately 10% of our sales are generated by telemarketing and the remaining 3%
of our sales are generated via our website. We also publish a catalog of our audio
books that we update regularly, which is provided to potential wholesale book buyers,
bookstores and libraries on a regular basis. Sales that result from our catalogue
mailings are not tracked separately but are included in our computation of sales
resulting from telemarketing.
Audio Books
We currently offer more than 600 audio book titles. We publish our audio books
on both cassette-tape and CD format. During the 2004 fiscal year we published
117 of our audio titles in both cassette-tape and CD format, 140 titles solely
on cassette tape, and 80 titles solely on CD, the remaining 263 titles have been
published but are currently back listed titles. We expect that consumer demand
for books will continue to shift from cassette tape to CD format.
During the 1st quarter of 2005, we redesigned our website to allow consumers to
rent audio books in CD format. We expect this as well as other enhancements to our
website to add to our product revenue streams. We continue to make available an
"Audio Book Sampler Tape" that highlights the first two minutes of thirty of our
audio books, enabling a listener to get a flavor for the books. During 2004,
we re-edited the "Sampler Tape" to include new selections that display the broader
range of titles we now offer. We began providing the new "Sampler Tape" in 2005.
Audio book sales in the United States are primarily made through wholesale distributors.
These distributors include BARJAN, KSG, UAV, TNG, and AUDIO ADVENTURES. This group
of distributors place our products in regional and national truck stop "chains"
that include FLYING J, LOVE'S, SAPP BROTHERS, TRAVEL CENTERS OF AMERICA, and PILOT.
In this industry sector, our products are present in over 850 retail outlets
serving the trucking and travel industry. While we are not dependent on any single
distributor, if we were to lose two or more of these distributors, without
replacing them with another outlet source, it would have a material adverse impact
on our revenues and results of operations. During the year ended December 31, 2004,
these five major customers represented 29%, 20%, 13%, 5% and 5% of our net sales,
respectively.
In addition to this wholesale distribution network, our books are sold to approximately
17,000 retail stores and approximately 5,000 libraries. To obtain greater market
exposure and sales penetration, we have customer database and order processing
agreements with Baker and Taylor, Advanced Marketing Services, Ingram Book Company,
Anderson News Company, Books-A-Million/American Wholesale Book Company, Barnes
and Noble, BJ's, Brodart Company, Hastings, Lodes Tone, Penton Overseas, Professional
Media, and Recorded Books. Pursuant to these database and order processing agreements,
the wholesalers or retailers who are parties to the agreements include our titles
in their listings of available inventory and we include their titles in our listings
of available inventory.
During the fiscal year ended December 31, 2004, audio books in both cassette tape
and CD formats accounted for 99.1% of our sales revenues. We duplicate, package
and ship our audio book products in-house. Our duplication equipment allows us to
reduce cost while increasing efficiency and speeding up delivery time. We leased
and purchased this equipment in the 1st quarter of 2004.
Print Books
During 2004, we added two more print books: Hiding Under the Table and Missing Marlene.
The Company has published 8 print books, however six print books the Company no
longer owns the rights to. The current print books only account for approximately $2,000 in
sales.
2
Electronic Books
During 2005 we plan to offer books that may be downloaded from our website, although
there is no assurance that we will accomplish this goal since we have not yet
developed software that will protect these products from unauthorized duplication.
For that reason, we have not, to date, promoted these titles nor made them available
for purchase. We currently have 15 books that will be available electronically.
There were no sales of electronic books during the 2004 fiscal year.
Coreflix
During the third quarter of the 2004 fiscal year, we acquired the operations and
assets of Action Media Group, LLC (doing business as Coreflix) in consideration
of 8,000,000 of our pre-split common shares.. Coreflix rents action sports DVDs
from its website. The acquisition of these assets will diversify our product
offerings and, we believe, expand our customer base. During the quarter ended
September 30, 2004, we retained the services of Mr. Ben Padnos to assist our
employees with integrating the Coreflix operations. Mr. Padnos continues to
render these services to us.
Competition
At this time we do not represent a significant competitive presence in the audio
book publishing and selling industry. We are seeking to raise our profile in a
number of ways, including giving higher visibility to lesser known authors,
providing easier ways to find products on our website by use of our specially
designed search engine, providing faster delivery of products sold, and
providing competitive pricing whenever possible.
Nonetheless, since we began to sell to the truck stop market in 2003, we have
established wholesale distribution-customer contracts with key distributors,
including BarJan, Audio Adventures, UAV, TNG, and KSG. We believe that we are
now recognized in the truck stop market as one of the significant suppliers of
the audio products purchased.
We currently publish series works by authors Barry Sadler, Jerry Ahern, Axel Kilgore,
Jeffrey Lord, Dana Fuller Ross, Donald Clayton Porter, Matthew S. Hart, Hank
Mitchum, Michael D. Cooper, Louis Tridico, William W. Johnstone, Erick Neilson,
Brian Lutterman, Paul Dengelegi, and Mack Maloney.
Government Regulation
In general, other than state or local licensing laws, our business is not
subject to government regulation. Because most of our telemarketing is targeted
to other businesses, the "National Do Not Call Registry" has not had a
significant effect on us. Also, because the percentage of sales we make via the
Internet is so low, we do not believe that legislation taxing Internet sales, or
regulating email solicitations or otherwise regulating Internet commerce will have a
material adverse impact on our business.
Employees
As of December 31, 2004, we employed 15 full time employees.
Item 2. DESCRIPTION OF PROPERTY
Our principal offices are located at 303 San Mateo NE, Suite 104A, Albuquerque,
New Mexico 87108. The premises are leased and the condition of the premises is
good. The original lease was for a term of 3 years. Upon the expiration of the
original term in December 2001, we began to lease the premises on a month-to-month
basis. The rent is $3,000 per month. These offices are primarily utilized for
administration, accounting, and marketing.
We lease additional office and warehouse space located at 142 Truman Street,
Albuquerque, New Mexico. The term of the lease is a month to month tenancy, accruing
rent at the rate of $5,000 per month. This larger facility is utilized for graphics
design, production-duplication of cassettes and CDs, packaging and shipping, web
service, and sales support.
Both the building in which our principal office is located and the building in which the
additional office and warehouse space is located are owned by entities owned and
controlled by our President and Chief Executive Officer, George Lovato, Jr.
Item 3. LEGAL PROCEEDINGS
On December 19, 2003, a complaint was filed against us by Challenge Printing in
the State District Court of Minnesota. The complaint sought payment in the amount
of $38,067 for services rendered to our subsidiary, Corporate Media Group, Inc.
During the 4th quarter of 2004, our Minnesota counsel resolved the previously
reported litigation brought by Challenge Printing, as vendor to the former
subsidiary known as Corporate Media Group, Inc. (CMG). The matter was resolved by
mediation, and a negotiated settlement. As part of the resolution, the plaintiff
returned to us 86,517 pre-split shares of our common stock and we agreed to pay
Challenge $15,000. As of April 1, 2005 we paid all amounts due and this matter is closed.
On July 9, 2004, a complaint was filed against us by ABF Freight System, Inc. in
the Second Judicial District Court of New Mexico. The complaint sought payment
in the amount of $10,537.07 for services rendered to the Company. During the 4th
quarter of 2004, our New Mexico counsel resolved the previously reported litigation
brought by ABF Trucking for collection of a disputed vendor account. The matter
was resolved by negotiated settlement amount and stipulated payment to occur over
a six month period in the amount of $1,500 per month. As of April 1, 2005 we paid
all amounts due and this matter is closed.
During the 3rd and 4th quarters of 2004, on appeal to the Federal District Court
for the Eastern District, State of Tennessee, we secured a reversal of a decision
made by the Bankruptcy Court in the CMG bankruptcy and related adversarial proceedings
brought by Richard and Susan Durand. This order set aside the Bankruptcy Court's
finding of a default against us. We filed an answer to the Complaint and we have
filed a counterclaim against both Richard Duran and Susan Durand for breach of
contract and fraud. We are also asking the Federal District Court to either
dismiss the proceeding filed there, or in the alternative to abstain from the matter,
based upon the fact that in 2002 we filed an action in the District Court of Bernalillo
County, New Mexico against Richard Durand and Susan Durand for breach of contract and
fraud, which claims are identical to the claims subsequently brought in the Tennessee federal
court.
During 2004, New Mexico counsel resolved and otherwise paid the previously reported,
Metropolitan Court (Small Claims Court), Bernalillo County, New Mexico matters
against vendors/suppliers: Rex Burns (royalty dispute), and Left Field Designs
(graphics services dispute). Plaintiffs Burns and Left Field sought payment of
alleged vendor account balances. These matters were handled in Metropolitan Court
for disputes on matters involving less than $10,000.
During 2004, New Mexico counsel continues in the normal course of business and
Court scheduling to handle the District Court, Bernalillo County, New Mexico
disputed matter previously disclosed, known as WBX (raw materials dispute). Americana
has filed its Counter Claim for damages. The matter awaits the Court's scheduling process.
During 2004, New Mexico counsel continues in the normal course of business and Court
scheduling to handle the Metropolitan Court (Small Claims Court), Bernalillo County,
New Mexico disputed matter known as Duel Jamieson (voice talent dispute). We settled this
matter by paying $350 to Mr. Jamieson.
Our New Mexico counsel will handle a demanded account from Demand Printing
(print materials dispute). We terminated this vendor account in November 2004 for
non-performance and intend to seek recovery for compensatory and consequential
damages incurred. Currently, neither party has initiated litigation for recovery
of accounts or damages. Demand Printing's claim for unpaid account balance is for
less than $10,000.
On December 14, 2004 the law firm of Hagerty, Johnson, Albrightson & Beitz, P.A.
filed a claim against us in the Conciliation Court of Hennepin County, Minnesota.
The plaintiff sought $6,597 for unpaid legal fees. We settled the action in February
2005 by paying the plaintiff $6,597 during March, 2005.
On January 20, 2005, a proceeding was initiated before the American Arbitration
Association by Tew Cardenas LLP in behalf of the claimant, TheSubway.com, Inc.
The arbitration Claimant is seeking $42,009 in performance fees allegedly owed by
us. We are vigorously contesting the claim. Preliminary hearings have been held
by telephone conference on or about March 24, 2005. The American Arbitration
Association has set June 27, 2005 as the hearing date before the designated Arbitrator.
Other than these reported actions and resolutions, we know of no pending nor
threatened litigation as of the end of the 4th quarter of 2004.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
Part II
Item 5. MARKET FOR COMMON EQUITY
AND RELATED SHAREHOLER MATTERS AND SMALL BUSINESS ISSUER
PURCHASE OF SECURITIES
Our common stock began trading on The National Association of Securities
Dealers, Inc. Electronic Bulletin Board (the "OTC Bulletin Board) on November 8,
1999. Our ticker symbol is APBI. The following table represents the closing high
and low bid information for our common stock during the last two fiscal years as
reported by the OTC Bulletin Board. The quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not represent actual
transactions. The market for our common stock is sporadic.
2004 High Low
First Quarter $1.00 $0.60
Second Quarter $0.56 $0.03
Third Quarter $0.17 $0.05
Fourth Quarter $0.05 $0.02
2003 High Low
First Quarter $1.00 $0.64
Second Quarter $2.40 $0.38
Third Quarter $3.40 $1.48
Fourth Quarter $1.24 $0.68
There were approximately 1,500 holders of common stock as of December 31, 2004.
We have not paid any dividends in the past and currently we have no plans to pay
dividends in the foreseeable future.
4
Recent Sales of Unregistered Securities
During the 2004 fiscal year, 11,002,588 post split shares of our unregistered common
stock not otherwise previously reported were issued to the following individuals:
o 3,812,500 shares were issued to our Chief Executive Officer and President,
George Lovato;
o 850,000 shares were issued to our Chief Financial Officer, Don White;
o 637,500 shares were issued to Dr. David Poling, a member of our Board of
Directors;
o 125,000 shares were issued to Jay Simon, a member of our Board of Directors;
o 362,500 shares were issued to Jerome Ruther, a member of our Board of Directors;
o 366,250 shares were issued to various other employees; and
o 4,848,838 shares were issued to various consultants.
All of this stock was issued in lieu of cash compensation for services rendered
or as a bonus for extraordinary services rendered. The common stock was issued
at an average price of $0.15 per share to employees, officers and directors for
total services valued at $966,500 and to consultants for total services valued
at $1,374,260. These transactions were made pursuant to an exemption provided by
Section 4(2) of the Securities Act of 1933.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis of results of operations and financial
condition are based upon our financial statements. These statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America. These principles require management to make certain
estimates, judgments and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates based on
historical experience and various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
GENERAL
Our primary business is the publication and sale of audio books, but we
also offer print books, intend to offer electronic books, and offer DVD's for rent.
Thus far, almost all of our revenues have been earned from the sale of audio books.
Our former subsidiary, Corporate Media Group, Inc. filed for protection under the
provisions of Chapter 7 of the US Bankruptcy Code on August 5, 2003. In the
2nd quarter of 2004, pursuant to Federal Bankruptcy Court Rules of Procedure and
generally accepted accounting rules, the assets and liabilities of CMG were
removed from our consolidated financial statements. This action resulted in a
one time equity improvement to the Company's balance sheet of $2,166,803.
7
We currently have limited internal and external sources of liquidity. At this
time, aside from what we will spend on duplication equipment, we have
made no material commitment for capital expenditures. During the year ended
December 31, 2004, we spent approximately $147,644 for the production of audio
masters. Our budget projections for the calendar year 2005
are for $100,000 in capital expenditures, primarily for additional duplication,
packaging, direct mail, recording equipment and the production of audio masters.
With the exception of a continuing flatness in sales of our products to audio book
distributors and retailers, and the uncertainty related to whether or not we
will be able to raise working capital when we need it, we do not know of any trends,
events or uncertainties that are expected to have a material impact on our net
sales and income from continuing operations. Sales of our books are not seasonal
in nature, although we may experience an increase in sales during the year-end holidays.
The Company intends to stimulate sales through direct marketing efforts to individual
retail customers. This will be accomplished through direct mail, email blasts
and telemarketing. Thus these sales are expected to increase the Company sales margin.
RESULTS OF OPERATIONS
Year Ended December 31, 2004, Compared to Year Ended December 31, 2003.
Our revenues from operations for the year ended December 31, 2004 were
$1,229,977 as compared to revenues of $1,277,572 for the year ended December 31,
2003. Revenues decreased due to a decrease in the Company's truck stop sales.
Our gross profit from operations for the fiscal year ended December 31, 2004
decreased to $726,331 as compared to $792,690 for the fiscal year ended December
31, 2003. Our gross margin percent decreased to 59 % in fiscal year 2004 from
65 % in fiscal year 2003. The decrease in gross profit from operations is
attributable to price reductions, while the decrease in gross margin percent
is attributable to selling larger amounts of audio books at reduced prices.
This was a result of decreasing aging inventory at liquidation prices.
General and administrative expenses consist primarily of salaries and related expenses
for executive, finance and other administrative personnel, consultants and professional
fees, recruitment expenses, and other corporate expenses, including business
development. Selling, general and administrative costs increased by $361,118,
to $3,524,078 for the year ended December 31, 2004 as compared to $3,162,960
for the year ended December 31, 2003, a 11% increase. This increase is primarily
attributable to an increase in salary expense, factoring expense, and setting up
a reserve for uncollectible AR of $178,541.
Interest expense was $12,865 during the year ended December 31, 2004 as compared
to the year ended December 31, 2003 was $0. The $12,865 interest expense is in
regards to the June 2004 Convertible Debentures.
Our net ordinary loss from operations was $2,951,409 for the year ended December 31,
2004 as compared to a loss from operations of $2,520,989 for the year ended
December 31, 2003, an increase in ordinary loss of $430,420. The increase in
net ordinary loss from operations was primarily attributable to an increase in
the issuance of common stock for services.
Our net loss for the year ended December 31, 2004 was $(819,901) as compared to
$2,520,972 in net loss for the year ended December 31, 2003. The reduction in
net loss resulted from a one time adjustment to our financial statements in the
amount of ($2,166,803) made as a result of the finalization of the Corporate Media
Group, Inc. bankruptcy, which allowed us to remove its net liabilities from our
consolidated financial statements.
8
GOING CONCERN
Our financial statements have been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. During the years ended December 31, 2004 and
2003, we incurred net losses of $819,901 and $2,520,972 , respectively. In
addition, as of December 31, 2004, our total current liabilities exceeded our
total current assets by $1,008,447. These factors, among others, raise substantial
doubt about our ability to continue as a going concern. The Company intends to
acquire a new financing facility in the range of $500,000 to $1,000,000 in the
near future. This capital will be used to eliminate old debt as well as to
engage in certain marketing activities that are intended to increase both sales and margin.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2004 we had $1,356 in cash on hand. Our primary sources of cash
during the year ended December 31, 2004 came from revenues earned from the sale
of our products, our factoring arrangement and the sale of our securities.
During 2002, the Company entered into an asset based line of credit factoring
agreement with Langsam Borenstein Partnership. Pursuant to this agreement, we sell
selected accounts receivable to Langsam Borenstein Partnership in the face
amount of no less than $5,000 per month. Langsam Borenstein Partnership charges
a varying commission on each invoice sold, depending on the number of days
payment is outstanding. The commission may vary from 4% to 10%. This agreement
has no set term and may be cancelled by either party on notice to the other. As
part of this transaction, we granted to Langsam Borenstein a security interest
in our assets, including our receivables. This security interest is subordinate
to the security interest granted to the holders of our 6% Convertible
Debentures. The Company engaged in a transaction in June of 2004 whereby $290,000
in convertible notes with warrant coverage were sold to various investors. All
of our assets have been pledged to two creditors. At December 31, 2004 we had a
net ordinary loss from continuing operations of $2,938,544, and a total net
loss of $(819,901).
Net cash provided by operating activities during the year ended December 31,
2003 was $196,432 as compared to $(58,248) of net cash used in operating
activities during the year ended December 31, 2004, a decrease of $254,680.
Net cash used in investing activities totaled $318,098 for the year ended
December 31, 2004 as compared to net cash used in investing activities in
the amount of $28,981 for the year ended December 31, 2003. Cash was used for
the purchase of audio tape and CD stock for master recordings and for studio
time and voice talent during the fiscal year ended December 31, 2004
Net cash provided by financing activities totaled $40,944 for the year ended
December 31, 2003 as compared to net cash provided by financing activities
totaling $341,912 for the year ended December 31, 2004. The Company borrowed
$257,311 on a Convertible Debenture, the balance of $84,601 was from the sale of
common stock.
Our attainment of profitable operations is dependent upon our ability to license
new titles cost-effectively, our ability to increase sales of our products and
our ability to keep our expenses under control. We are attempting to increase
our market share by selling not only to distributors, but also by selling directly
to truck drivers and to independent truck stops. We have also attempted to
reduce our costs by integrating audio and print graphic design, printing, duplication
and packaging production. This was accomplished through changing the packaging
for both CD and cassette format books so that the cover design and the casing were
comprised as one single unit rather than two separate components.
By September 30, 2004, the operations of Action Media Group, LLC (doing business
as "Coreflix") were fully integrated with our operations in Albuquerque, New Mexico.
Through the Coreflix name, we rent action sports DVD's through the Coreflix website.
During the 2004 fiscal year, Coreflix produced gross revenues of $11,024.
Now that the Coreflix operations are fully integrated, we expect these revenues
to increase.
We project that during 2005, the technology afforded by Coreflix' operations
will provide us with the opportunity to cost-effectively expand the distribution
of our audio library products. Specifically, our goal is to expand the purchase
of our existing audio product assets by offering online/web sales and eventually
modifying this same sight to offer downloading of these traditional cassette and
CD audio products. If we are successful in implementing this plan, and overcome
security and potential counterfeiting concerns, we expect margins on these sales
to be greater than sales made to distributors. These downloadable products, from
existing library assets, would be a B2C transaction. This expansion would represent
improved utilization of existing Company assets, technology, and personnel.
The Company continues to seek methods to reduce expenses. The 2nd quarter's redesign
of cassette tape packaging, produced in the 3rd quarter a reduction in costs for
raw materials and labor required to assemble, package, and ship our products.
Additionally, changing the CD raw material supplier produced a higher product
quality and a labor savings through reduction of product duplication-production
time. The Company also prints all products through the use of high speed, high
resolution laser printing equipment. These cost savings should continue to benefit
the Company in the future.
Marketing initiatives by the Company during 2004 increased sales in those targeted
efforts. With improved inventory control, the Company has been able to provide
targeted promotional sales incentives to its primary wholesale distribution network.
Excess aging inventory was offered at reduced pricing to these wholesalers.
These promotional activities periodically improved sales and revenue. The Company's
"800" number call in sales decreased from $66,735 in 2003 to $51,423 in 2004 due
to the increased focus on reduction of aging inventory. The Company anticipates
that the telemarketing, email blasts and direct mail efforts should improve sales in 2005.
Sales personnel generated improved results from two primary customers in the core
industry sector served by the Company. During the 3rd quarter of 2004 we entered
into an agreement with The News Group (TNG). TNG operates in 10 major regions across
North America, which customer network includes the Army and Air Force Base Exchange
Systems, as well as national networks of truck stops, convenience marts, and
retail drug stores. In August 2004, TNG placed its initial monthly order of
approximately $7,000. Additionally, during 2004, the Company's largest customer,
Audio Adventures, Inc., purchased product at a higher rate than in 2003. During
the 2004 fiscal year, Audio Adventures ordered product totaling $237,174 as compared
to product orders of $67,663 in 2003.
Effective August 26, 2004 we implemented a 40:1 reverse stock split which was
approved by our stockholders on January 30, 2004. This action was taken due to
the belief that the sub-penny per share price was an ongoing hindrance to
qualified investor review of our business, and subjected our common stock to
downward volatility. Effective August 26, our stock ticker symbol was changed to
APBI.
While our business plan is not reliant upon the acquisition of related businesses,
we continue to consider such acquisitions. Due to our extremely tight cash flow,
any such acquisition would have to be made by using shares of our common stock.
We are not presently engaged in any negotiations with, nor do we have any commitments
to, any person or entity to acquire any business or assets.
During the next 12 months we will finance our operations primarily through
revenues from sales of our products although, if our revenues are inadequate, we
will be required to seek additional funds through sales of our securities or
from related party loans. The Company is in discussion with various financing
sources to provide financing for the Company in the near future, however we
cannot guarantee that we will be successful in raising additional capital when
we need it. If we need money for our operations but we are not successful
in generating sufficient revenues, raising money through the sale of our
securities or borrowing money, we may be required to significantly curtail, or
to cease, our operations.
9
During 2002, we entered into an asset based line of credit factoring agreement
with Langsam Borenstein Partnership. Pursuant to this agreement, we sell
selected accounts receivable to Langsam Borenstein Partnership in the face
amount of no less than $5,000 per month. Langsam Borenstein Partnership charges
a varying commission on each invoice sold, depending on the number of days
payment is outstanding. The commission may vary from 4% to 10%. This agreement
has no set term and may be cancelled by either party on notice to the other. As
part of this transaction, we granted to Langsam Borenstein a security interest
in our assets, including our receivables. This security interest is subordinate
to the security interest granted to the holders of our 6% Convertible
Debentures.
In September, October and November 2001 our director, Jerome Ruther, loaned us
$100,000, $100,000 and $100,000, respectively. Each loan accrues interest at the
rate of 30% per year. Interest is to be paid monthly and principle is to be paid
one year from the date of the loan. This obligation is currently in default, as
no payments of principle or interest have been paid toward this obligation. To
date, no demand for payment or attempt to collect this obligation has been made
by Mr. Ruther. Payment of each of these obligations is secured with 500,000 pre-split
shares of our common stock.
In December 2001 our Chief Financial Officer and director, Don White, loaned us
$10,000. The loan accrues interest at the rate of 30% per year. Interest is to
be paid monthly and principle is to be paid one year from the date of the loan.
This obligation is currently in default, as no payments of principle or interest
have been paid toward this obligation. To date, no demand for payment or attempt
to collect this obligation has been made by Mr. White. Payment of this
obligation is secured with 100,000 pre-split shares of our common stock.
A shareholder loaned us $50,000, $2,500 and $25,000 in September 2002, November
2002 and December 2002, respectively. These loans accrue at an interest rate of 6%.
The Company is currently making payments of $500.00 per month.
We entered into a securities purchase agreement, as of April 1, 2002, with a number of
investors who agreed to purchase an aggregate of $200,000 in principal amount of
our 12% senior secured convertible debentures, which were to mature on April
2003. Together with such debentures, the investors were also issued Class A
warrants and Class B warrants. This agreement was restructured on June 15, 2003.
Pursuant to the restructuring agreement, the principal amount of the debentures
was increased to $337,195, the interest rate of the debentures was reduced to 6%
and is paid quarterly and the due date of the debentures was extended until June
15, 2005. Payment of the debentures is secured by our assets. As a result of a
missed payment, the interest rate on the debenture was increased on August 21, 2003
from 6% to 18%. As of December 31, 2004 an approximate balance of $185,000
remained, the difference of which was converted to common stock during the course
of 2004 at varying prices. George Lovato, Jr., David Poling, Jay Simon and Don White,
directors of the Company, made a loan of $10,000 each for a total of $40,000 to
the Company in February 2005. It is anticipated that these loans will be repaid
as soon as funds are available.
10
Recently Issued Accounting Pronouncements
In December of 4 the Financial Accounting Standard Board ("FASB") revised
SFAS #123.
This Statement establishes standards for the accounting for transactions in which
an entity exchanges its equity instruments for goods or services. It also addresses
transactions in which an entity incurs liabilities in exchange for goods or services
that are based on the fair value of the entity's equity instruments or that may be
settled by the issuance of those equity instruments. This Statement focuses primarily
on accounting for transactions in which an entity obtains employee services in
share-based payment transactions. This Statement does not change the accounting
guidance for share-based payment transactions with parties other than employees
provided in Statement 123 as originally issued and EITF Issue No. 96-18, "Accounting
for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or
in Conjunction with Selling, Goods or Services." This Statement does not address the
accounting for employee share ownership plans, which are subject to AICPA Statement
of Position 93-6, Employers' Accounting for Employee Stock Ownership Plans.
The Company does not expect adoption of SFAS #123 to have a material impact, if
any, on its financial position.
In November of 2004 the Financial Accounting Standards Board ("FASB") issued SFAS
#151, an amendment of ARB No. 43.
This Statement amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing,"
to clarify the accounting for abnormal amounts of idle facility expense, freight,
handling costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4,
previously stated that ". . . under some circumstances, items such as idle facility
expense, excessive spoilage, double freight, and re-handling costs may be so
abnormal as to require treatment as current period charges. . . ." This Statement
requires that those items be recognized as current-period charges regardless of
whether they meet the criterion of "so abnormal." In addition, this Statement requires
that allocation of fixed production overheads to the costs of conversion be based
on the normal capacity of the production facilities.
The Company does not expect adoption of SFAS #149 to have a material impact, if
any, on its financial position or results of operations.
In December of 2004 the Financial Accounting Standards Board ("FASB") issued SFAS
#152, an amendment of FASB Statements No. 66 and 67.
This Statement amends FASB Statement No. 66, Accounting for Sales of Real Estate,
to reference the financial accounting and reporting guidance for real estate
time-sharing transactions that is provided in AICPA Statement of Position (SOP)
04-2, Accounting for Real Estate Time-Sharing Transactions. This Statement also
amends FASB Statement No. 67, Accounting for Costs and Initial Rental Operations
of Real Estate Projects, to state that the guidance for (a) incidental operations
and (b) costs incurred to sell real estate projects does not apply to real estate
time-sharing transactions. The accounting for those operations and costs is subject to
the guidance in SOP 04-2.
The Company does not expect adoption of SFAS #150 to have a material impact, if
any, on its financial position or results of operations.
In December of 2004 the Financial Accounting Standards Board ("FASB") issued SFAS
#153, an amendment of APB Opinion No. 29.
The guidance in APB Opinion No. 29, Accounting for Non-monetary Transactions, is
based on the principle that exchanges of non-monetary assets should be measured
based on the fair value of the assets exchanged. The guidance in that Opinion,
however, included certain exceptions to that principle. This Statement amends
Opinion 29 to eliminate the exception for non-monetary exchanges of similar
productive assets and replaces it with a general exception for exchanges of non-
monetary assets that do not have commercial substance. A non-monetary exchange
has commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange.
Item 7. Financial Statements
Financial Statements
CONTENTS Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT F-1
FINANCIAL STATEMENTS
Consolidated Balance Sheet F-2
Consolidated Statements of Operations F-3
Consolidated Statement of Shareholders' Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6 to F-18
Item 8. CHANGES IN OR DISAGREEMENTS WITH ACCOUNTANTS ON ACOUNTING AND FINANCIAL DISCLSOURE.
Not applicable.
Item 8A. DISCLOSURE CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. Regulations under the
Securities Exchange Act of 1934 require public companies to maintain "disclosure
controls and procedures," which are defined to mean a company's controls and
other procedures that are designed to ensure that information required to be
disclosed in the reports that it files or submits under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported, within the time
periods specified in the Commission's rules and forms. Our Chief Executive
Officer ("CEO") and our Chief Financial Officer ("CFO") carried out an
evaluation of the effectiveness of our disclosure controls and procedures as of
the end of the period covered by this report. Based on those evaluations, our
CEO and CFO believe:
(i) that our disclosure controls and procedures are designed to ensure that
information required to be disclosed by us in the reports we file under the
Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms and
that such information is accumulated and communicated to our management,
including the CEO and CFO, as appropriate to allow timely decisions
regarding required disclosure; and
(ii) that our disclosure controls and procedures are effective.
13
Changes in Internal Controls. There were no significant changes in our internal
controls or, to our knowledge, in other factors that could significantly affect
our internal controls subsequent to the evaluation date. In the future, however,
we intend to seek legal assistance with the preparation of our reports.
Item 8B. OTHER INFORMATION
Not Applicable
PART III
Item 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names, ages, and positions of our Directors,
Executive Officers and Advisors to the Board of Directors.
Management
Name Age Position
George Lovato, Jr. 48 CEO/Chairman/President
Don White 53 Director/CFO/Vice President
David Poling 75 Director/Vice President
Jay Simon 45 Director/Secretary/Treasurer
Jerome Ruther 70 Director
Lowell S. Fixler 70 Advisor to the Board
Philippe de La Chapelle 62 Advisor to the Board
Stedman Walker, Ltd. N/A Advisor to the Board/Consultant
All Directors of the Company will hold office until the next annual meeting of
shareholders of the Company or until their successors are duly elected and
qualified. None of our Directors, nor our outsider Advisors, currently receive
any form of cash compensation for their participation on the Company's Board
of Directors. At the chairman's discretion he may award stock and/or stock options
to the Directors in lieu of cash compensation for services rendered.
The officers of the Company are appointed by the Board of Directors at the first
meeting after each annual meeting of the Company's shareholders, and hold office
until their death, or until they shall resign or have been removed.
Director, Jay Simon is married to our CEO's sister.
No individual on our Board of Directors possesses all of the attributes of an
audit committee financial expert and no one on our Board of Directors is deemed
to be an audit committee financial expert. In forming our Board of Directors, we
sought out individuals who would be able to guide our operations based on their
business experience, both past and present, or their education.
We recognize that having a person who possesses all of the attributes of an audit
committee financial expert would be a valuable addition to our Board of
Directors, however, we are not, at this time, able to compensate such a person
therefore, we may find it difficult to attract such a candidate.
BIOGRAPHICAL INFORMATION
George Lovato, Jr.
Mr. Lovato is the founder of Americana and has been a Director, Chairman and
President since the Company's inception. Over the past 15 years Mr. Lovato has
acquired extensive management experience with startup companies, corporate
finance, computer system and software development, international trade and
relations, strategic planning, and sales and marketing development. Mr. Lovato
has rendered services to companies engaged in business management, public
relations, advertising, corporate finance, agriculture, automotive industry
consulting, travel, auto rental and leasing, and insurance.
Mr. Lovato was educated in New Mexico. He is the principal and sole owner of B.
H. Capital Limited, a merchant banking and corporate finance consulting
enterprise located in Albuquerque, New Mexico with branch offices in New York,
Colorado and Houston, Texas.
Don White
Mr. White is a Director, Vice President and Chief Financial Officer of
Americana. Mr. White is a CPA in Houston, Texas, and has operated an accounting
practice for over 20 years. Mr. White was educated at Sam Houston State
University and received his degree in accounting in 1972. Mr. White has broad
expertise in the development of market value financial statements. He currently
advises the Company on general financial matters and corporate development and
oversees the audit and acquisition committees. Mr. White fulfills the duties and
responsibilities of the Company's Chief Financial Officer, as necessary. Mr.
White has served as a director and as Vice President of the Company since its
inception.
14
Dr. David Poling
Dr. Poling is a Director and Vice President of Americana. He is also Chairman of
Sierra Publishing Group, the author of a dozen books and a nationally syndicated
columnist whose column is published in 600 newspapers. Formerly, Dr. Poling was
in charge of The Christian Herald, a publication with a half million monthly
circulation. Dr. Poling is also the President of the Family Bookshelf, the
largest religious book club in the United States. Dr. Poling is a Presbyterian
clergyman educated at College of Wooster, Ohio and Yale University. Dr. Poling
has served on the board as a Director and as a Vice President since the
Company's inception.
Jay Simon
Mr. Simon is a Director and Secretary/Treasurer of Americana. Mr. Simon
graduated from the University of New Mexico in 1986 with a BS in Pharmacy. Mr.
Simon is currently the Chief Operating Officer of Global Medical Solutions, Ltd.
Formerly, Mr. Simon was the Vice President of International for Syncor. Mr.
Simon is nuclear pharmacist and has been involved in nuclear medicine and
business operations for over 20 years. Mr. Simon has served as a Director and as
the Company's Secretary/Treasurer since its inception.
Jerome Ruther
Mr. Ruther is a Director of the Company. Mr. Ruther graduated from Northwestern
University in 1954 with a degree in accounting. Later Mr. Ruther attended
Northwestern University Law School, graduated, and engaged in the legal
profession for approximately 20 years. Mr. Ruther has had business experience
with various media businesses and real estate developments. He was also a
controlling shareholder of Sunset Productions, Inc., an audio book production
company. Mr. Ruther has been a Director of the Company since January 2001.
Lowell S. Fixler, Advisor to the Board of Directors
Mr. Fixler graduated from Northwestern University in 1954. Mr. Fixler was
president and controlling shareholder of Needlecraft Corporation of America,
which was purchased by Quaker Oats Co. After its purchase by Quaker Oats Co.,
Mr. Fixler remained as president of the division. Mr. Fixler has been an
investor in various start-up companies and in numerous business enterprises.
Philippe de La Chapelle, Advisor to the Board of Directors
Mr. de La Chapelle formerly was the Managing Director of Hill Thompson Capital
Markets, Inc., an investment banking firm founded in 1932. Mr. de La Chappell
specializes in the development of United States and offshore corporate finance
opportunities. A graduate of Georgetown Law School, he has been international
counsel for W.R. Grace and Co. Currently, he is Executive Vice President of
Warnaco.
Stedman Walker, Ltd., Advisor to the Board of Directors
Stedman Walker, Ltd. is a corporate finance and investor relations consulting
firm with over 100 years of experience.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act requires our directors, executive
officers and persons who own more than 10% of our common stock to file reports
of ownership and changes in ownership of our common stock with the Securities
and Exchange Commission. Directors, executive officers and persons who own more
than 10% of our common stock are required by Securities and Exchange Commission
regulations to furnish to us copies of all Section 16(a) forms they file.
To our knowledge, based solely upon review of the copies of such reports
received or written representations from the reporting persons, we believe that
during our 2004 fiscal year our directors, executive officers and persons who
own more than 10% of our common stock complied with all Section 16(a) filing
requirements.
CODE OF ETHICS
We have adopted a code of ethics that applies to our principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions. Such code of ethics will be
provided to any person without charge, upon request, a copy of such code of
ethics by sending such request to us at our principal office.
15
Item 10. EXECUTIVE COMPENSATION
The following table shows the compensation paid over the past three fiscal years
with respect to: (i) the Company's President as of the end of the 2004 fiscal
year; (ii) the four other most highly compensated executive officers (in terms
of salary and bonus) serving at the end of the 2004 fiscal year whose annual
salary and bonus exceeded $100,000; and (iii) up to two additional individuals
who would be in category (ii) but for the fact that the individual was not
serving as an executive officer of the Company at the end of the last completed
fiscal year (the "named executive officers"):
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other
Name Annual Restricted Securities LTIP All
And Compen Stock Underlying Payouts Other
Principal Salary Bonus sation Award(s) Options SARs(1) Compen
Position Year ($) ($) ($) ($) ($) sation
George Lovato
CEO/Director 2004 0 0 0 569,000 0 0 0
2003 0 0 0 5,700(2) 0 0 0
2002 604,520(3) 0 0 35,000 0 0 0
Jay Simon
Sec/Treas/Director
2004 0 0 0 23,000 0 0 0
2003 0 0 0 0 0 0 0
2002 0 0 0 0 0 0 0
David Poling
V. President/Director
2004 0 0 0 76,750 0 0 0
2003 0 0 0 500(4) 0 0 0
2002 140,000(5) 0 0 17,500 0 0 0
Jerome Ruther 2004 0 0 0 59,000 0 0 0
Director (2) 2003 0 0 0 0 0 0 0
2002 0 0 0 0 0 0 0
Don White 2004 0 0 0 151,000 0 0 0
CFO/Director 2003 0 0 0 3,200(7) 0 0 0
2002 420,583(8) 0 0 17,500 0 0 0
(1) No SARs were granted or exercised by any named executive officer in any of,
the last three fiscal years.
(2) During the 2003 fiscal year we issued 285,000 shares of our common stock,
having a value of $5,700, to Mr. Lovato. The value of the stock was computed
using the closing price on December 31, 2003, of $0.02 per share.
The restricted stock award vested on the date of the grant.
(3) The amount also include $577,520, paid with 8,250,292 shares of common
stock issued in lieu of cash compensation for services rendered
(4) During the 2003 fiscal year we issued 25,000 shares of our common stock,
having a value of $500, to Mr. David Poling. The value of the stock was
computed using the closing price on December 31, 2003, of $0.02 per share.
The restricted stock award vested on the date of the grant.
(5) The amounts also include $140,000, paid with 2,000,000 shares of common
stock issued in lieu of cash compensation for services rendered
(6) Amounts paid to Mr. Ruther were paid for services performed for the Company
in conjunction with the creation of our audio books division.
(7) During the 2003 fiscal year we issued 160,000 shares of our common stock,
having a value of $3,200, to Mr. Don White. The value of the stock was
computed using the closing price on December 31, 2003, of $0.02 per
share. The restricted stock award vested on the date of the grant.
(8) The amounts also include $406,000, paid with 5,800,000 shares of common
stock issued in lieu of cash compensation for services rendered
No stock options were granted or exercised by any executive officer during the
fiscal year ended December 31, 2004.
16
On January 1, 1999 the Company entered into an employment agreement with Mr.
George Lovato, its President. The term of the agreement is one year, but the
agreement may automatically be renewed each year for a period of three years
unless either party elects to terminate it. Mr. Lovato is to receive
compensation at the rate of $250,000 per year or 5% of the Company's gross
revenue, whichever is greater. Mr. Lovato will not receive any deferred
compensation from Americana. The Company may not terminate the agreement if Mr.
Lovato becomes disabled, ill or incapacitated. If Mr. Lovato dies during the
term of employment, the Company must pay his estate the sum of $500,000 in fifty
monthly installments of $10,000 each. Subject to certain events, including the
sale of substantially all of the Company's assets to a single purchaser and
bankruptcy, among others, the Company may terminate the agreement upon 90 days
written notice if it pays Mr. Lovato the sum of $500,000 in twelve consecutive
monthly installments. The Company may terminate the agreement with cause with
twelve months written notice. During the notice period, the Company must
continue to pay Mr. Lovato the full amount of his compensation. Mr. Lovato will
also receive a severance allowance of $250,000 made in twelve consecutive
monthly installments beginning on the date of termination. Mr. Lovato may
terminate his employment upon twelve months written notice to the Company.
Mr. Don White is paid $3,000 per month for his services as Chief Financial
Officer. On November 1, 1999 we entered into an employment agreement with Mr.
White. The agreement may be terminated for cause or on 90 days written notice.
The agreement may not be terminated if Mr. White becomes disabled. If
termination occurs due to certain corporate events, such as a sale of
substantially all of our assets, the purchase of our stock in a transaction
meant to take us "private", the termination of our business or the liquidation
of our assets, or other enumerated events, we will be required to pay Mr. White
the sum of $500,000 which may be paid in 12 consecutive monthly installments. If
we terminate Mr. White's employment for cause, we will be required to pay him a
severance payment of $250,000, which may be paid in 12 consecutive monthly
installments. Mr. White may terminate his employment by giving us 12 months
notice. If he terminates his employment, we will be required to pay Mr. White a
severance payment of $250,000, which may be paid in 12 consecutive monthly
installments.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The following table sets forth the stock ownership of each person known by the
Company to be a beneficial owner of five percent (5%) or more of the Company's
equity securities, each of our executive officers, each of our directors, and
all of our directors and executive officers as a group. The term "executive
officer" is defined as the Chief Executive Officer, Chief Financial Officer,
Secretary and the Vice-Presidents. Each individual or entity named has sole
investment and voting power with respect to shares of common stock indicated as
beneficially owned by them, subject to community property laws, where
applicable, except where otherwise noted.
Name and Address of Amount and Nature
Beneficial Owner Title of Class of Beneficial Ownership Percent of Class
- --------------------------------------------------------------------------------
George Lovato, Jr Common 3,732,983 21.2%
12310 Claremont NE
Albuquerque, NM 87112
Don White Common 990,000 5.6%
8106 Devonwood
Huston, TX 77070
Jerome Ruther Common 88,780 .5%
1208 North Summit Drive
Santa Fe, NM 87501
Jay Simon Common 35,000 .2%
5528 E. Cheryl Drive
Paradise Valley, AZ 85253
David Poling Common 600,308 3.4%
3616 San Rio Place NW
Albuquerque, NM 87107
Total Shares of Officers and
Directors as a Group Common 5,447,071 30.9%
For information concerning our equity compensation plans, see Item 5 of this
Annual Report on Form 10-KSB.
17
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On January 1, 1999 we entered into a Corporate Finance Consulting Agreement with
B. H. Capital Limited, an entity owned and controlled by our President and Chief
Executive Officer, Mr. George Lovato, Jr. The term of the agreement is for 5
years. This agreement requires us to pay a success fee to B. H. Capital Limited
for any financing obtained for Americana by B. H. Capital Limited. The success
fee is calculated as 1% of the gross amount of financing raised.
We pay B. H. Capital Limited a $3,000.00 monthly facility use fee for use of B.
H. Capital Limited's office, personnel, and facilities. This agreement was also
entered into on January 1, 1999 and had an initial term of 3 years. The lease is
currently continuing on a month-to-month basis.
In January 2000 we entered into a lease with Tierra Americana Real Estate, LLC,
an entity controlled by our President and Chief Executive Officer, Mr. George
Lovato, Jr., for the premises located at 142 Truman Street, Albuquerque, New
Mexico. We use this space for offices and warehousing. We also sublet a portion
of this space. The lease has a term of four years.
In September, October and November 2001 our director, Jerome Ruther, loaned us
$100,000,in each month, respectively. Each loan accrues interest at the
rate of 30% per year. Interest is to be paid monthly and principle is to be paid
one year from the date of the loan. No payments of principle or interest have
been paid toward this obligation.
In December 2001 our Chief Financial Officer and director, Don White, loaned us
$10,000. The loan accrues interest at the rate of 30% per year. Interest is to
be paid monthly and principle is to be paid one year from the date of the loan.
No payments of principle or interest have been paid toward this obligation.
During 2002 employees of Corporate Media Group, Inc. loaned money to Corporate
Media Group, Inc. or its division, Visual Energy Studio. The loans totaled
$83,397. The loans were not documented with promissory notes. Of this amount,
$48,751 was loaned to Corporate Media Group by Richard Durand.
The Chairman, George Lovato, Jr. allowed the use of various credit cards utilized
to purchase certain raw materials and services. These short term loans are
intended to be paid back as soon as funds are available. The total credit
card loan amount is $24,026.17.
B. H. Capital Limited purchased various duplication and packaging equipment
and in turn leased this equipment back to the Company for a gross lease amount
of $35,000. Lease payments are being made on a monthly basis of $1,700. This
lease was executed in January of 2004 and is anticipated to terminate December
of 2005.
18
Item 13. EXHIBITS
3.1(i) - Articles of Incorporation, incorporated by references from
the registrant's Form 10-SB filed with the Securities and
Exchange Commission on April 15, 1999.
3.2(ii) - Bylaws, incorporated by references from the registrant's
Form 10-SB filed with the Securities and Exchange Commission on
April 15, 1999.
10.1 - Security Agreement and Power of Attorney to Langsam Borenstein
Partnership, ("Purchaser" by Americana Publishing, Inc.
("Seller") filed with the Securities and Exchange Commission on
October 23,2003.
10.2 - Agreement with Karim Amiryani, Douglas W. Jordan, Douglas W.
Jordan Defined Benefit Pension Plan, Norman Ross, Tel Pro
Marketing, Stranco Investment and Vestcom for the purchase of 12%
Convertible Debentures, filed with the Securities and Exchange Commission on
October 23,2003.
10.3 - Restructure Agreement between Advantage Fund I, LLC and
Americana Publishing, Inc., filed with the Securities and Exchange Commission on
October 23,2003.
10.4 - 6% Senior Secured Convertible Debenture issued by the
registrant in favor of Advantage Fund I, LLC, filed with the Securities and Exchange Commission on
October 23,2003.
10.5 - Convertible Debenture dated September 13, 2001 in favor of
Jerome Ruther, filed with the Securities and Exchange Commission on
October 23,2003.
10.6 - Convertible Debenture dated October 12, 2001 in favor of Jerome
Ruther, filed with the Securities and Exchange Commission on
October 23,2003.
10.7 - Convertible Debenture dated November 21, 2001 in favor of
Jerome Ruther, filed with the Securities and Exchange Commission on
October 23,2003.
10.8 - Convertible Debenture dated September 2002 in favor of S.
Fixler, filed with the Securities and Exchange Commission on
October 23,2003.
10.9 - Convertible Debenture dated October 2002 in favor of Don White,
filed with the Securities and Exchange Commission on
October 23,2003.
10.10- Convertible Debenture dated December 2002 in favor of S.
Fixler, filed with the Securities and Exchange Commission on
October 23,2003.
10.11- Promissory Note dated December 5, 2001 in favor of Don White,
filed with the Securities and Exchange Commission on
October 23,2003.
10.12- Lease between Americana Publishing, Inc. and B. H. Capital,
Inc. for premises located at 303 San Mateo NE, Suite 104A,
Albuquerque, New Mexico, filed with the Securities and Exchange Commission on
October 23,2003.
10.13- Lease between Americana Publishing, Inc. and Tierra Americana
Real Estate, LLC for premises located at 142 Truman Street,
Albuquerque, New Mexico, incorporated by reference from the
registrant's Form 10-KSB (File No. 000-25783) filed with the
Securities and Exchange Commission on February 25, 2000.
10.14- Lease between Corporate Media Group, Inc. and Rick Durand for
premises located at 142 Lupton Lane, Cleveland, Tennessee, filed
with the Securities and Exchange Commission on October 23,2003.
10.15- Employment Agreement between Americana Publishing, Inc. and
George Lovato, incorporated by reference from the registrant's
Form 10-SB filed with the Securities and Exchange Commission on
April 15, 1999.
10.16- Employment Agreement between Americana Publishing, Inc. and
Don White, incorporated by reference from the registrant's Form
10-KSB (File No. 000-25783) filed with the Securities and
Exchange Commission on February 25, 2000.
10.17- Americana Publishing, Inc. 2000 Stock Purchase and Option
Plan, incorporated by reference to the registrant's registration
statement on Form S-8 (File No. 333- 48408) filed with the
Securities and Exchange Commission on October 23, 2000.
10.18- Americana Publishing, Inc. 2003 Equity Incentive Plan,
incorporated by reference from the registrant's registration
statement on Form S-8 (File No. 333-105369) filed with the
Securities and Exchange Commission on May 19, 2003.
10.19- Corporate Finance Consulting Agreement between the registrant
and B. H. Capital Ltd., incorporated by reference from the
registrant's Form 10-SB filed with the Securities and Exchange
Commission on April 15, 1999.
10.20- Form of 12% Senior Secured Convertible Debenture, filed
with the Securities and Exchange Commission on October 23,2003.
10.21- Form of Class A Warrant issued to BG Holdings, LLC and Gulf
Coast Advisors, Ltd., filed with the Securities and Exchange Commission on
October 23,2003.
10.22- Form of Class B Warrant issued to BG Holdings, LLC and Gulf
Coast Advisors, Ltd., filed with the Securities and Exchange Commission on
October 23,2003.
10.23- Form of Class A Warrant issued to Toscana Group, Inc., filed
with the Securities and Exchange Commission on October 23,2003.
10.24- Form of Class B Warrant issued to Toscana Group, Inc., filed
with the Securities and Exchange Commission on October 23,2003.
10.25 - 6% Senior Secured Convertible Debenture issued to Addison Adams,
December 18, 2003, filed with the Securities and Exchange Commission on March 30, 2004.
10.26 - 6% Senior Secured Convertible Debenture issued to Nimish Patel,
December 18, 2003, filed with the Securities and Exchange Commission on March 30, 2004.
10.27 - 6% Senior Secured Convertible Debenture issued to Erick Richardson,
December 18, 2003, filed with the Securities and Exchange Commission on March 30, 2004.
10.28 - Equipment lease between Americana Publishing, Inc. and B.H.
Capital Limited, LLC, filed with the Securities and Exchange Commission
on March 30, 2004.
14. - Code of Ethics filed with the Securities Exchange Commission on March 30, 2004.
23. - Consent of Independent Auditor, filed herewith.
31.1 - Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) and 15d-14(a).
31.2 - Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) and 15d-14(a).
32.1 - Certification of Chief Executive Officer Pursuant to Section 1350 of Title 18 of the
United States Code.
32.2 - Certification of Chief Financial Officer Pursuant to Section 1350 of Title 18 of the
United States Code.
-------------------------------------------------------
19
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth fees billed to us by our auditors during the
fiscal years ended December 31, 2004 and December 31, 2003 for: (i) services
rendered for the audit of our annual financial statements and the review of our
quarterly financial statements, (ii) services by our auditor that are reasonably
related to the performance of the audit or review of our financial statements
and that are not reported as Audit Fees, (iii) services rendered in connection
with tax compliance, tax advice and tax planning, and (iv) all other fees for
services rendered. "All other fees" consisted of services relating to the filing
of the Form 10-Q's.
December 31, 2004 December 31, 2003
(i) Audit Fees $36,000 $30,000
(ii) Audit Related Fees $ 0 $ 0
(iii) Tax Fees $ 0 $ 0
(iv) All Other Fees $ 7,500 $ 7,500
20
SIGNATURES
In accordance with Section 13 of 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, hereunto duly
authorized.
AMERICANA PUBLISHING, INC.
Date: April 15, 2005
By:/s/George Lovato, Jr.
George Lovato, Jr., Chairman,
Chief Executive Officer and
President
By:/s/Don White
Don White, Chief Financial
Officer
In accordance with the requirements of the Exchange Act, this report has
been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated:
Name Title Date
/s/George Lovato, Jr.
George Lovato, Jr. Chairman, Chief Executive April 15, 2005
Officer and President
/s/Don White
Don White Chief Financial Officer, April 15, 2005
Director
/s/Dr. David Poling
Dr. David Poling Director April 15, 2005
/s/Jay Simon
Jay Simon Director April 15, 2005
/s/Jerome Ruther
Jerome Ruther Director April 15, 2005
21
Exhibit
31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO RULES 13a-14 AND 15d-14
OF THE SECURITIES EXCHANGE ACT OF 1934
I, George Lovato, Jr., President and Chief Executive Officer of Americana
Publishing, Inc. (the "Company"), certify that:
I have reviewed this annual report on Form 10-KSB of Americana Publishing, Inc.
Based on my knowledge, this annual report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this annual report.
Based on my knowledge, the financial statements, and other financial information
included in the report, fairly present in all material respects the financial
condition, results of operations and cash flows of the Company as of, and for,
the periods presented in the report.
The Company's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Company and have:
(a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under my supervision, to
ensure that material information relating to the Company, including its
consolidated subsidiaries, is made known to me by others within those entities,
particularly during the period in which the periodic report is being prepared;
(b) evaluated the effectiveness of the Company's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this annual report based on such evaluation; and
(c) disclosed in this annual report any change in the Company's internal
control over financial reporting that occurred during the Company's most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting; and
The Company's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
Company's auditors and to the audit committee of the board of directors (or
persons fulfilling the equivalent function):
(i) all significant deficiencies in the design or operation of internal
control over financial reporting which are reasonably likely to
adversely affect the Company's ability to record, process, summarize
and report financial information; and
(ii) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal
control over financial reporting.
Dated April 15, 2005
/s/George Lovato, Jr.
George Lovato, Jr.
President and Chief Executive
Officer
22
Exhibit
31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO RULES 13a-14 AND 15d-14
OF THE SECURITIES EXCHANGE ACT OF 1934
I, Don White, Chief Financial Officer of Americana Publishing, Inc. (the
"Company"), certify that:
I have reviewed this annual report on Form 10-KSB of Americana Publishing, Inc.
Based on my knowledge, this annual report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this annual report.
Based on my knowledge, the financial statements, and other financial information
included in the report, fairly present in all material respects the financial
condition, results of operations and cash flows of the Company as of, and for,
the periods presented in the report.
The Company's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Company and have:
(a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under my supervision, to
ensure that material information relating to the Company, including its
consolidated subsidiaries, is made known to me by others within those entities,
particularly during the period in which the periodic report is being prepared;
(b) evaluated the effectiveness of the Company's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this annual report based on such evaluation; and
(c) disclosed in this annual report any change in the Company's internal
control over financial reporting that occurred during the Company's most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting; and
The Company's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
Company's auditors and to the audit committee of the board of directors (or
persons fulfilling the equivalent function):
(i) all significant deficiencies in the design or operation of internal
control over financial reporting which are reasonably likely to
adversely affect the Company's ability to record, process, summarize
and report financial information; and
(ii) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal
control over financial reporting.
Dated April 15, 2005
/s/Don White
Don White
Chief Financial Officer
23
Exhibit
32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
OF AMERICANA PUBLISHING, INC.
PURSUANT TO 18 USC 1350
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and
(b) of Section 1350, Chapter 63 of Title 18, United States Code) each of the
undersigned officers of Americana Publishing, Inc. (the "Company") does hereby
certify, to such officer's knowledge, that:
The annual report on Form 10-KSB for the year ended December 31, 2004 of the
Company fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934 and the information contained in the Form 10-KSB
fairly presents, in all material respects, the financial condition and results
of operations of the Company.
Dated April 15, 2005
/s/George Lovato, Jr.
George Lovato, Jr., President
and Chief Executive Officer
24
32.1
CERTIFICATION OF CHIEF FINANCIAL OFFICER
OF AMERICANA PUBLISHING, INC.
PURSUANT TO 18 USC 1350
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and
(b) of Section 1350, Chapter 63 of Title 18, United States Code) each of the
undersigned officers of Americana Publishing, Inc. (the "Company") does hereby
certify, to such officer's knowledge, that:
The annual report on Form 10-KSB for the year ended December 31, 2004 of the
Company fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934 and the information contained in the Form 10-KSB
fairly presents, in all material respects, the financial condition and results
of operations of the Company.
Dated April 15, 2005
/s/Don White
Don White
Chief Financial Officer
25
Independent Auditor's Report
The Board of Directors and Shareholders
Americana Publishing, Inc.
Albuquerque, New Mexico
I have audited the accompanying balance sheet of Americana Publishing, Inc. as of December 31, 2004 and the related statements of
operations, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based on my audit.
I conducted the audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. The Company has determined that it is not required to have, nor was I engaged to perform, an audit of its
internal control over financial reporting. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable
basis for my opinion.
In my opinion, the financial statements referred to above presents fairly, in all material respects, the financial position of
Americana Publishing, Inc as of December 31, 2004 and the results of its operations and its cash flows for the year then ended in
accordance with the standards of the Public Company Accounting Oversight Board (United States).
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in
Note 2 to the financial statements, the Company has suffered recurring losses from operations, and its current liabilities exceed its
total current assets. This raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Philip H. Salchli, CPA
Houston, Texas
April 14, 2005
F-1
Americana Publishing, Inc.
Balance Sheet
As of December 31, 2004
ASSETS
Current Assets 2004
-------------
Cash and cash equivalents $ 1,356
Accounts Receivable, less allowance for doubtful
accounts of $207,857 148,601
Inventory 50,186
Prepaid and other current assets 37,919
Assets from discontinued operations -
---------------
Total Current Assets $ 238,062
Property and Equipment, net 578,202
---------------
TOTAL ASSETS $ 816,264
===============
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current Liabilities
Accounts Payable $ 230,858
Accrued expenses 619,340
Notes Payable 25,000
Convertible debt - related parties 114,000
Notes Payable - June Convertible Debt 257,311
-------------
Total current liabilities 1,246,509
Commitments and contingencies
Shareholder's deficit
Preferred stock, no par
20,000,000 shares authorized
no shares issued and outstanding -
Common stock, $0.001 par value
500,000,000 shares authorized -
18,648,896 shares issued and outstanding 18,648
Additional Paid-In Capital 15,757,699
Accumulated deficit (16,206,592)
-------------
Total shareholder's deficit (430,245)
-------------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT $ 816,264
=============
The Accompanying Notes are an Integrated Part of these Financial Statements
F-2
AMERICANA PUBLISHING, INC.
STATEMENTS OF OPERATIONS
For the Years Ended December 31,
2004 2003
Revenues $ 1,229,978 $1,227,512
Cost of goods sold 503,647 484,822
---------- ----------
Gross profit 726,331 792,690
Operating expenses
Depreciation and amortization 153,662 111,484
Selling, general, and administrative (including stock-
based compensation of $2,344,587 and $2,464,167) 3,524,078 3,162,960
---------- ----------
Total operating expenses 3,677,740 3,274,444
---------- ----------
Loss from operations (2,951,409) (2,481,754)
Other income (expense)
Miscellaneous Income 3,536 10,393
Miscellaneous Expense (38,831) (49,611)
---------- ----------
Total other income (expense) (35,295) (39,218)
Loss before extraordinary gain (2,986,704) (2,520,972)
Extraordinary Item
Discharge of Bankruptcy - CMG 2,166,803 -
---------- ----------
Net loss (819,901) $(2,520,972)
Basic and diluted loss per share
From continuing operations (0.12) $ (1.61)
From discontinued operations - -
---------- ----------
Total (0.12) $ (1.61)
========== ==========
Basic and diluted weighted-average shares outstanding 6,398,984 1,562,640
=========== ==========
The accompanying notes are an integral part of these financial statements.
F-3
AMERICANA PUBLISHING, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
For the Years Ended December 31,
Additional
Common Stock Paid-in Retained
Shares Amount Capital Earnings Total
Balance, December
31, 2002 30,863,837 30,863 10,315,726 (12,865,672) (2,519,082)
Issuance of common
stock in exchange
for cash 992,560 992 49,008 50,000
Issuance of common
stock to outside
consultants in
exchange for
services rendered 51,842,644 $ 51,843 $ 1,860,854 1,912,697
Issuance of common
stock to employees
and members of the
Board of Directors
for services
rendered 16,300,000 16,300 535,200 551,500
Net Loss (2,520,972) (2,520,972)
Balance, December
31, 2003
(after 40:1 reverse split) 2,499,976 2,500 12,858,283 (15,386,644) (2,525,858)
Issuance of common
stock for purchase
of shares 100,000 100 50,150
50,250
Issuance of common
stock to outside
consultants in
exchange for
services rendered 4,848,838 4,849 1,369,411 1,374,260
Issuance of common
stock to Board
of Directors 5,787,500 5,787 960,713 966,500
Issuance of common
stock to employees
for services rendered 368,250 366 79,353 79,719
Issuance of common
stock for note
conversions 3,357,360 3,358 329,558
332,916
Issuance of common
stock for option
exercises 1,550,000 1,550 21,700 23,250
Issuance of common
stock in exchange
for assets 138,000 138 88,531 88,669
Net Loss (819,900)
(819,900)
Balance, December
31, 2004 18,649,924 18,648 15,757,699 (16,206,544)
(430,244)
F-4
AMERICANA PUBLISHING, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
2004 2003
Cash flows from operating activities
Net loss from continuing operations $(2,951,409) $ (2,520,972)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 153,662 111,484
Allowance for doubtful accounts 178,541 -
Issuance of common stock to outside consultants
in exchange for services rendered 1,374,260 1,912,697
Issuance of common stock to employees and
members of the Board of Directors in exchange
for services rendered 966,500 551,500
Accounts receivable (Increase) Decrease (57,799) 80,877
Inventory (Increase) Decrease 33,154 (14,094)
Prepaid and other current assets (Increase) Decrease (32,240) 2,791
Factor payable Increase (Decrease) 42,413 42,413
Accounts payable Increase (Decrease) 10,756 (4,021)
Accrued expenses Increase (Decrease) 228,914 33,757
----------- ---------
Net cash used in operating activities ( 53,248) 196,432
Cash flows from investing activities
Purchase of property and equipment (318,098) (206,586)
----------- --------
Net cash provided by (used in) investing activities (318,098) (156,586)
Cash flows from financing activities
Proceeds of notes payable $ 257,311 $ (9,056)
Proceeds from sale of common stock 84,601 -
---------- --------
Net cash provided by financing activities 341,912 (9,056)
---------- --------
Net decrease in cash and cash equivalents (29,434) 30,790
Cash and cash equivalents, beginning of year 30,790 -
Cash and cash equivalents, end of year $ 1,356 $ 30,790
Supplemental disclosures of cash flow information
Interest Accrued - continuing operations 12,865 $ -
Income taxes paid - $ -
F-5
AMERICANA PUBLISHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
NOTE 1 - ORGANIZATION AND LINE OF BUSINESS
General
Americana Publishing, Inc. ("API") was organized as a Colorado
corporation on April 17, 1997. Americana Publishing, Inc. publishes
books.
Corporate Media Group, Inc.
On July 15, 2001, API acquired certain assets and liabilities of
Corporate Media Group, Inc. ("CMG"). The purchase price was $407,131,
which was paid by issuing 1,017,827 shares of API's common stock. CMG
recorded $905,733 in excess of cost over fair value of net assets
acquired, identified as goodwill. The acquisition was accounted for by
the purchase method. On December 31, 2001, it was determined the
goodwill was impaired; therefore, the full amount of goodwill was
written off, which is included in the statement of operations in loss
from discontinued operations for the year ended December 31, 2001.
For financial statement purposes, the acquisition occurred on August
1, 2001. The assets acquired were as follows:
Cash $ 277,067
Accounts receivable 259,570
Inventory 371,961
Income tax receivable 249,300
Property and equipment 1,827,541
Liabilities assumed (3,484,041)
Excess of cost over fair value 905,733
Total $ 407,131
CMG provided audio and video duplication, packaging, fulfillment, storage, and marketing, to
various customers throughout the nation.
During the nine months ended September 30, 2002, CMG ceased
operations and on August 5, 2003 filed a petition under Chapter 7 of the bankruptcy code. In
addition, the Company is involved in a lawsuit with the former owner
of CMG.
F-6
NOTE 1 - ORGANIZATION AND LINE OF BUSINESS (Continued)
Corporate Media Group, Inc. (Continued)
As of December 31, 2002, the net liabilities on discontinued
operations were as follows:
Cash $ -
Accounts receivable -
Accounts receivable - factored -
Inventory -
Property and equipment, net 1,507,059
Miscellaneous Receivables 12,371
-----------
Total assets 1,519,430
Book overdraft 5,507
Line of credit 201,248
Accounts payable 2,714,673
Accrued expenses 112,844
Note payable - factored 138,375
Note payable - related party 83,397
Capital lease obligations 430,189
----------
Total liabilities 3,686,233
Net liabilities due to discontinued operations (2,166,803)
==========
NOTE 2 - GOING CONCERN
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As shown
in the financial statements, during the years ended December 31, 2004
and 2003, the Company (as defined in Note 3) incurred losses of
($819,901) and ($2,520,972), respectively. In addition, as of December
31, 2004, its total current liabilities exceeded its total current
assets by $1,008,447.
These factors, among others, raise substantial doubt about its ability
to continue as a going concern.
Recovery of the Company's assets is dependent upon future events, the
outcome of which is indeterminable. The Company's attainment of
profitable operations is dependent upon the Company obtaining adequate
debt and equity financing and achieving a level of sales adequate to
support the Company's cost structure. Management plans to raise
additional equity capital and continue to develop its products.
F-7
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition
Revenue from the sale of products is
recognized when the products are shipped.
Comprehensive Income
The Company utilizes SFAS No. 130, "Reporting Comprehensive Income."
This statement establishes standards for reporting comprehensive
income and its components in a financial statement. Comprehensive
income as defined includes all changes in equity (net assets) during a
period from non-owner sources. Examples of items to be included in
comprehensive income, which are excluded from net income, include
foreign currency translation adjustments, minimum pension liability
adjustments, and unrealized gains and losses on available-for-sale
securities. Comprehensive income is not presented in the Company's
financial statements since the Company did not have any of the items
of comprehensive income in any period presented.
Cash and Cash Equivalents
For the purpose of the statements of cash flows, the Company considers
all highly liquid investments purchased with original maturities of
three months or less to be cash equivalents.
Inventory
Inventory, consisting principally of videocassettes, is valued at the
lower of cost (first-in, first-out) or market.
Property and Equipment
Property and equipment are stated at cost, less accumulated
depreciation and amortization.
F-8
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Property and Equipment (Continued)
Depreciation and amortization are provided using the straight-line
method over estimated useful lives as follows:
Continuing Operations
Database and circulation list 5 years
Computer equipment 5 years
Office furniture and fixtures 5 -7 years
Web site development 5 years
Leasehold improvements estimated useful life or
lease term, whichever is shorter
Discontinued Operations
Production equipment 7 years
Vehicles 5 years
Office furniture and fixtures 5 -7 years
Assets under capital leases 3 - 6 years
Leasehold improvements estimated useful life or
lease term, whichever is shorter
Fair Value of Financial Instruments
The Company measures its financial assets and liabilities in
accordance with generally accepted accounting principles. For certain
of the Company's financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable, and accrued
expenses, the carrying amounts approximate fair value due to their
short maturities. The amounts shown for line of credit, note payable -
factor, notes payable - related parties, convertible debt - related
parties, and capital lease obligations also approximate fair value
because current interest rates offered to the Company for debt of
similar maturities are substantially the same.
Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation," defines a
fair value based method of accounting for stock-based compensation.
However, SFAS No. 123 allows an entity to continue to measure
compensation cost related to stock and stock options issued to
employees using the intrinsic method of accounting prescribed by
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for
Stock Issued to Employees." Entities electing to remain with the
accounting method of APB No. 25 must make pro forma disclosures of net
loss and loss per share as if the fair value method of accounting
defined in SFAS No. 123 had been applied. The Company has elected to
account for its stock-based compensation to employees under APB No.
25.
F-9
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Advertising Expense
The Company expenses advertising in the period the service was
incurred. For the year ended December 31, 2004, advertising expense
for continuing operations was approximately $10,234. For the year
ended December 31, 2003, advertising expense for continuing operations
was approximately $3,002.
Income Taxes
The Company utilizes SFAS No. 109, "Accounting for Income Taxes,"
which requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this
method, deferred income taxes are recognized for the tax consequences
in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each period end
based on enacted tax laws and statutory tax rates applicable to the
periods in which the differences are expected to affect taxable
income. Valuation allowances are established, when necessary, to
reduce deferred tax assets to the amount expected to be realized.
Loss Per Share
The Company utilizes SFAS No. 128, "Earnings per Share." Basic loss
per share is computed by dividing loss available to common
shareholders by the weighted-average number of common shares
outstanding. Diluted loss per share is computed similar to basic loss
per share except that the denominator is increased to include the
number of additional common shares that would have been outstanding if
the potential common shares had been issued and if the additional
common shares were dilutive. Common equivalent shares are excluded
from the computation if their effect is anti-dilutive. Because the
Company has incurred net losses, basic and diluted loss per share are
the same.
Estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could
differ from those estimates.
F-10
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Concentrations of Risk
During the year ended December 31, 2004, the Company had net sales to
five major customers that represented 27%, 21%,15%, 14% and 5% of net
sales.
In the event of a merger, sale of the Company, a hostile takeover
attempt, or other sales of the Company's assets, each director
previously granted options will have the option to purchase 300,000
additional shares of common stock at $1 per share.
Recently Issued Accounting Pronouncements
In December 2004 the Financial Accounting Standard Board ("FASB") revised
SFAS No.123.
This Statement establishes standards for the accounting for transactions in which
an entity exchanges its equity instruments for goods or services. It also addresses
transactions in which an entity incurs liabilities in exchange for goods or services
that are based on the fair value of the entity's equity instruments or that may
be settled by the issuance of those equity instruments. This Statement focuses
primarily on accounting for transactions in which an entity obtains employee
services in share-based payment transactions. This Statement does not change the
accounting guidance for share-based payment transactions with parties other than
employees provided in Statement 123 as originally issued and EITF Issue No. 96-18,
"Accounting for Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services." This Statement
does not address the accounting for employee share ownership plans, which are
subject to AICPA Statement of Position 93-6, Employers' Accounting for Employee
Stock Ownership Plans.
The Company does not expect adoption of SFAS 123 to have a material impact, if
any, on its financial position.
In November of 2004 the Financial Accounting Standards Board ("FASB") issued SFAS No.
151, an amendment of ARB No. 43.
This Statement amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing,"
to clarify the accounting for abnormal amounts of idle facility expense, freight,
handling costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4,
previously stated that ". . . under some circumstances, items such as idle facility
expense, excessive spoilage, double freight, and re-handling costs may be so abnormal
as to require treatment as current period charges. . . ." This Statement requires
that those items be recognized as current-period charges regardless of whether
they meet the criterion of "so abnormal." In addition, this Statement requires that
allocation of fixed production overheads to the costs of conversion be based on
the normal capacity of the production facilities.
The Company does not expect adoption of SFAS No. 149 to have a material impact, if
any, on its financial position or results of operations.
In December 2004 the Financial Accounting Standards Board ("FASB") issued SFAS
No. 152, an amendment of FASB Statements No. 66 and 67.
This Statement amends FASB Statement No. 66, Accounting for Sales of Real Estate,
to reference the financial accounting and reporting guidance for real estate
time-sharing transactions that is provided in AICPA Statement of Position (SOP)
04-2, Accounting for Real Estate Time-Sharing Transactions. This Statement also
amends FASB Statement No. 67, Accounting for Costs and Initial Rental Operations
of Real Estate Projects, to state that the guidance for (a) incidental operations
and (b) costs incurred to sell real estate projects does not apply to real estate
time-sharing transactions. The accounting for those operations and costs is subject to
the guidance in SOP 04-2.
The Company does not expect adoption of SFAS No. 150 to have a material impact, if
any, on its financial position or results of operations.
In December of 2004 the Financial Accounting Standards Board ("FASB") issued SFAS
No. 153, an amendment of APB Opinion No. 29.
The guidance in APB Opinion No. 29, Accounting for Non-monetary Transactions, is based on the principle that exchanges of
non-monetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however,
included certain exceptions to that principle. This Statement amends Opinion 29 to eliminate the exception for non-monetary exchanges
of similar productive assets and replaces it with a general exception for exchanges of non-monetary assets that do not have
commercial substance. A non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange.
F-11
Stock Option Plan
In June 2000, the Board of Directors approved the adoption of a
non-qualified and incentive stock option plan, the 2000 Stock Purchase
and Option Plan (the "Plan"). The Plan is intended to provide
incentives to key employees, officers, and consultants of the Company
who provide significant services to the Company. There are 5,000,000
shares of common stock reserved for issuance under the Plan. Options
vest as determined by the Board of Directors. The Plan expires on
June 30, 2010.
The exercise price of options granted under the Plan will be
determined by the Board of Directors, provided that the exercise price
will not be less than 85% of the fair market value on the date of
grant. In addition, if the option is granted to an officer or director
of the Company, the exercise price will not be less than 100% of the
fair market value on the date of grant. Furthermore, incentive stock
options may not be granted to a 10% shareholder, unless the exercise
price is 110% of the fair market value on the date of grant.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2004 consisted of the following:
Continuing Operations
Audio Production Cost 598,414
Database and circulation list 239,314
Computer equipment 154,958
Office furniture and fixtures 45,564
Web site development 44,663
Leasehold improvements 5,299
Other 96,442
DVD Inventory 120,000
---------
1,304,654
Less accumulated depreciation and amortization 726,449
---------
Total 578,205
=========
Depreciation and amortization expense for continuing operations was
$153,662 and $111,484 for the years ended December 31, 2004 and 2003,
respectively.
F-12
NOTE 5 - NOTES PAYABLE
Note Payable $ 25,000
Convertible Debt Related Parties 114,000
Notes Payable - Convertible Debt 2004 257,311
Total $ 396,311
NOTE 6 - CONVERTIBLE DEBT - RELATED PARTIES
The Company issued convertible debt, as summarized below, payable to
various individuals, which is convertible at the option of the holder
into the Company's common stock. Interest at 30% per annum is payable
on a monthly basis. If the note holders elect to convert their debt
into common stock, the conversion prices range from $0.05 to $0.10 per
share. This debt was converted to common stock during 2004.
The terms associated with each series for the year ended December 31, 2004(?)
are as follows:
30% notes, due September 2002, convertible at $0.05 per share,
and secured by 750,000 shares of restricted common stock $ 150,000
30% notes, due October 2002, convertible at $0.05 per share,
and secured by 500,000 shares of restricted common stock 100,000
30% notes, due November 2002, convertible at $0.05 per share,
and secured by 500,000 shares of restricted common stock 102,500
30% notes, due December 2002, convertible at $0.05 per share,
and secured by 125,000 shares of restricted common stock 25,000
30% notes, due December 2002, convertible at $0.10 per share,
and secured by 300,000 shares of restricted common stock 10,000
Total $ 387,500
================
In accordance with generally accepted accounting principles, the
discount on the conversion feature of the above notes arising from the
conversion feature is considered to be interest expense and is
recognized in the statement of operations during the period from the
issuance of the debt to the time at which the debt becomes
convertible. The Company recorded a conversion feature of $385,000.
Since the debt was immediately convertible, the $385,000 was
recognized in the statement of operations during the year ended
December 31, 2004.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Leases
The Company leases its office facilities from a related party under
operating lease agreements, which expired in December 2004 and now is
a month-to- month lease and requires monthly payments of $5,000 per month.
Future minimum payments under these operating and capital lease
agreements at December 31, 2004 were as follows:
Year Ending Operating
December 31, Leases
2004 0
$ 0
Less amount representing interest ================
Rent expense was $57,227 and $48,000 for the years ended December 31, 2004 and
December 31, 2003, respectively.
Financial Consulting Agreement
On January 1, 1999, the Company entered into a non-cancelable,
Corporate Financial Consulting Agreement with its Chairman/majority
shareholder. The agreement calls for the Company to pay the related
party a monthly fee of $3,000 for a period of five years in
consideration for the related party providing general assistance in
identifying credit/capital resources as well as providing office,
personnel, and facilities to the Company.
In addition, the agreement calls for the Company to pay the related
party a 1% success fee for any gross amount of debt financing or net
worth of any entity merged or acquired on behalf of the Company by the
related party and a 1% renewal fee of the amount of such financial
arrangements for a period of five years. Management believes that the
monthly fee approximates the value of these services had the Company
obtained these services from an unrelated party.
F-13
NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)
Employment Agreements
On January 1, 1999, the Company entered into an employment agreement
with its Chairman/majority shareholder. Under the terms of the
agreement, the employee receives a salary of $250,000 per year or 5%
of gross revenue of the Company, whichever is greater. The Company may
not terminate the agreement for any reason as it relates to the
employee's disability, illness, or incapacity. Should the employee die
during the term of employment, the Company will pay the employee's
estate $500,000 in 50 monthly installments of $10,000. Subject to
certain events, including the sale of substantially all of the
Company's assets to a single purchaser or bankruptcy, the Company may
terminate the agreement upon 90 days' written notice and pay the
employee $500,000 in 12 consecutive monthly installments.
With cause, the Company may terminate the agreement with 12 months'
written notice. During the notice period, the employee will be paid
full compensation and receive a severance allowance of $250,000 in 12
consecutive monthly installments beginning on the date of termination.
Without cause, the employee may terminate employment upon 12 months'
written notice to the Company. During the notice period, the employee
may be required to perform his duties and will be paid his full
compensation up to the termination date and will receive a severance
allowance of $250,000, which will be paid in 12 equal and consecutive
monthly installments beginning on the date of termination.
On November 1, 1999, the Company entered into a one-year employment
agreement with its Vice President/director, which contains an
automatic three-year renewal. Under the terms of the agreement, the
employee receives a salary of $36,000 per year, plus paid vacation of
five weeks. The Company may not terminate the agreement for any reason
as it relates to the employee's disability, illness, or incapacity.
Subject to certain events, including the sale of substantially all of
the Company's assets to a single purchaser or bankruptcy, the Company
may terminate the agreement upon 90 days' written notice and pay the
employee $500,000 in 12 consecutive monthly installments.
With cause, the Company may terminate the agreement with 12 months'
written notice. During the notice period, the employee will be paid
full compensation and receive a severance allowance of $250,000 in 12
consecutive monthly installments beginning on the date of termination.
Without cause, the employee may terminate employment upon 12 months'
written notice to the Company. During the notice period, the employee
may be required to perform his duties and will be paid his full
compensation up to the termination date and will receive a severance
allowance of $250,000, which will be paid in 12 equal and consecutive
monthly installments beginning on the date of termination.
Factoring Agreement - Continuing Operations
The Company will require future financing in various forms. The
Company is financing working capital timing differences with an
asset-based line of credit factoring agreement with Langsam Borenstein
Partnership. In April 2002, the Company entered into an agreement with
Langsam Borenstein providing for sale of selected accounts receivable
belonging to the Company to Langsam Borenstein in the face amount of
at least $5,000.00 per month. Langsam Borenstein in accordance with
the terms of the agreement charges a varying percentage rate on each
invoice sold by the Company to Langsam Borenstein from 4% for payment
by the customer within 30 days to 10% for payment by the customer
between 81 to 90 days.
Litigation
The Company is involved in certain legal proceedings and claims which
arise in the normal course of business. Management does not believe
that the outcome of these matters will have a material effect on the
Company's financial position or results of operations.
F-14
NOTE 8 - SHAREHOLDERS' DEFICIT
Common Stock
During the years ended December 31, 2004 and 2003, the Company sold
100,000 and 992,560 pre-split shares, respectively, of common stock for
$50,250 and $50,000, respectively, under regulation 4(2). Regulation
4(2) provides for the sale of restricted shares of common stock
without the preparation of a prospectus. The shares offered cannot be
sold for a period of one year.
During the years ended December 31, 2004 and 2003, the Company issued
6,153,750 and 16,300,000 pre-split shares, respectively, of common stock to
employees and members of its Board of Directors for services rendered.
Compensation expense of $996,500 and $551,500 was recorded with an
offset to common stock and additional paid-in capital during the years
ended December 31, 2004 and 2003, respectively.
Common Stock (Continued)
During the years ended December 31, 2004 and 2003, the Company issued
4,848,838 and 51,842,644 pre-split shares, respectively, of common stock to
outside consultants and companies for services rendered. These shares
were recorded at their fair market value at the time of issuance.
Consulting expense of $1,378,086 and $1,912,697 was recorded with an
offset to common stock and additional paid-in capital during the years
ended December 31, 2004 and 2003, respectively.
NOTE 9 - INCOME TAXES
A reconciliation of the expected income tax computed using the federal
statutory income rate to the Company's effective rate for the years
ended December 31, 2004 and 2003 was as follows:
2004 2003
Income benefit computed at federal statutory tax
rate (34.0)% (34.0)%
State taxes, net of federal benefit (5.0) (5.0)
Permanent differences 6.0 6.0
Valuation allowance 33.0 33.0
Total - % - %
Significant components of the Company's deferred tax assets for income
taxes consisted of the following at December 31, 2004
Deferred tax assets
Net operating loss carry forward $ 5,011,417
Less valuation allowance 5,011,417
Net deferred tax assets $ -
As of December 31, 2004, the Company had net operating loss
carry forwards for federal and state income tax purposes of
approximately $7,107,970 and $5,787,873, respectively. The net
operating loss carry forwards begin expiring in 2017.
NOTE 10 - RELATED PARTY TRANSACTIONS
The Company entered into a financial consulting agreement with its
Chairman/majority shareholder (see Note 7).
The Company entered into an employment agreement with its
Chairman/majority shareholder (see Note 7).
The Company entered into an employment agreement with its Vice
President/director (see Note 7).
During the year ended December 31, 2004, the Company issued a total of
5,787,500shares of common stock to various Board members, various
officers/Board members, and the Chairman/majority shareholder valued
at $878,500, which represents the fair market value.
NOTE 11 - SUBSEQUENT EVENTS - UNAUDITED
Convertible Debt - Related Parties
All amounts owed by Americana Publishing, Inc. are in default.
F-17
NOTE 11 - SUBSEQUENT EVENTS - UNAUDITED (Continued)
Litigation (Continued)
o The Company is suing a former director for breach of warranty,
breach of contract, and fraud. In addition, the former director
has threatened to file a lawsuit against the Company.
Other Contingencies
The Company is in negotiations with an officer of CMG, concerning the
resolution of $170,000 in expenses and reimbursements of CMG due this
officer. The Company has offered 300,000 shares of common stock in
exchange for any amounts it might owe to the officer. The Company has
been unable to obtain a settlement.